Speaker 1 00:00:03 Hello and welcome everyone. I'm Peter Larman and this is Masters in Small Business m and A. This show is an ongoing exploration into the vast and undercover world of small business m and a, where we interview both the proven and the emerging owners, operators, investors and advisors whose strategies and methods for transaction success have been put to the test. The show aims to surface the nuanced intricacies, the key ingredients, and the important factors that can improve your decision making in your own journey in the world of small business m and a. This podcast is produced by Axial, an online platform that makes it easier for business owners and their m and a advisors to find research and privately connect with a diverse mix of professional buyers of small businesses. In addition to learning more about Axial, you can find this podcast show notes, edited transcripts, and many other related resources all for
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Speaker 2 00:01:02 Peter Larman is the CEO of Axial. All opinions expressed by Peter and podcast guests do not reflect the views or opinions of Axial. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Podcast guests may have ongoing client relationships with Axial.
Speaker 1 00:01:21 Hey folks, welcome back. This is Masters in Small Business m and a. I'm your host Peter Laman. It is Friday morning and we get to sit down with Nick Leopard, founder and c e o of accordion. He and I both started building different businesses basically at the same time back in 2009. Uh, he's got a super interesting story that's incredibly relevant for buyers of businesses, for acquirers, for owners and operators. So Nick, thanks so much for making time on your Friday morning. It's, it's great to see you and great to have you.
Speaker 3 00:01:47 Not a better Friday morning than spend with you, Peter.
Speaker 1 00:01:49 Well, I know you've got, uh, some kid, kid obligations about an hour, hour and a half hour from now, so we'll use the time. Well I want to quickly, we we're gonna spend a lot of time talking about like the playbook of A C F O running a private equity backed company, whether it's a big one or a small one. I want to get there quickly. But first let's just contextualize things with a little bit of your own, you know, your own personal biography. You know, tell us just what is accordion, why did you start it and what was your background prior, just to sort of center things for for the listeners. Yeah,
Speaker 3 00:02:18 Uh, really exciting about the journey We've, we've been on since starting accordion in 2009. Accordion at its very core and now I'll give you a very background. It is a consulting business that focuses exclusively on private equity backed companies and exclusively within the office of the CFO within these portfolio companies. And so a big part of our go to market strategy is working with tons of middle market large cap and some lower middle market private equity sponsors on the value creation plan stemming off from the office of the CFO within the portfolio companies. And I started the business in 2009 having a background of, I call it kind of three different parts. Um, we're all sort of a sum of our experiences, but I started my career as a junior person at a financial services startup called Capital Source. And within it was, it was run by a young founder, heavy, heavy young culture.
Speaker 3 00:03:17 And it was young entrepreneurial place. We ended up taking that company public within three years as a 3 billion market cap company. And it was just a great, a great success. And for me, I thought every company in my first job outta college was like all about culture and it was had that culture and then I went to investment banking at Bear Stearns and I quickly realized that culture that we had at Capital Source was not the same at as Wall Street investment banks. But at the same time I loved the work, but that's experience at Capital Source really stuck with me. I had exited Bear Stearns prior to bear blowing up in 2008 and I was at a mezzanine fund and as one would would have it during a, during a downturn, we ended up getting very involved in our portfolio companies sometimes taking the keys to those we couldn't necessarily pay back the Mez debt, but one of the single biggest areas where I was spending my time was with the CFOs of our portfolio companies and helping them around analytics, fp and a type work.
Speaker 3 00:04:20 And I think if you're an entrepreneur you just have this burning desire to like build something in order to go buy something to run. And I was getting that desire and it was really sort of like eating at me. I'm like, I, I want to go start a company. And I looked at the marketplace and I said, look, private equity as an asset class is only getting bigger. The rise of portfolio operations within these private equity funds was getting more and more prevalent and the office of the CFO is severely underserved. It wasn't being served by the big four or the management consultant firms and there was a real opportunity to go serve these CFOs and private equity backed environments with this type of expertise. And so started with a real deep FB and a focus people like ourselves. And then now you fast forward and we serve the entire office of the cfo. We are now in our second turn of private equity. We've got about 970 employees across the US and globally and serve about 300 private equity funds.
Speaker 1 00:05:15 It's so, you know, one of the things that's so cool is just like the, the sort of dogfooding story of accordion, right? You guys, you know, deliver services to private equity backed offices of the cfo. I'm sure you now are dogfooding a lot of your own products and capabilities cuz you've made some acquisitions along the way. There's a ton here that I want to dive into. Obviously the story itself is really interesting and you've made four or five acquisitions with I'm sure more along the way. I'd love to maybe get to that a as we wrap up. But what I'd, what I'd like to really dig in on in, in small business m and a, what we see at, at this sort, you know, sort of end of the market is we see one out of every two signed lois where a buyer and a seller has decided to, you know, they've, they've, they've signed off on, on buying a business.
Speaker 1 00:06:00 We see usually one and every two break. And of the 50% that break, I would say somewhere between 50 and and 75% of of those that break break because of material diligence issues, most of which have to do with issues related to the the office of the C F O or the, the fact that there is no office of a C ffo. And so I really wanna just kind of dive into the, the playbook there. The playbook that you guys have developed, how you guys think about developing playbooks, distributing playbooks, executing playbooks, whether it's sale readiness or, or whether it's post-transaction. Like if you were to listen to this episode and you were buying businesses and acquiring businesses but they were too small to to to work with a big four, certainly too small for big four, but you know, maybe even still too small for for accordion, what could you take away from, from Nick by the end of this episode? So let's start by just diving in on like what is the playbook that you guys try to sort of work backwards from when you're thinking about serving A C F O or just the finance function inside a business that is making acquisitions or that has been recently acquired. Like how do you go in, what do you look at? How do you set it up? Just tell us a little bit about just the way you guys go about doing your work and the expertise you've built there.
Speaker 3 00:07:17 Yeah, happy to. I think it's small business m and a in in particular. There is a view that a CFO is focused on closing the monthly box, making sure people get paid, there's cash in the, in the bank. And then I think as you move off market through private equity, that's always been a general understanding. But there's been more and more deeper realization that this role when done right, what I just talked about is really table stakes. But the office of the CFO can be a real source of value creation and like true quantifiable value creation, not just accelerating monthly close process. So you get your financials out earlier, but like real like table stakes to like real understand the data that exists within a company. Then when we call this really the diet approach, which is data insights, action and then transformation. And so everything I've talked about in the traditional sense of like small business CFO is great and needs to be done, but when you think about the data environment that exists within a company and then using that data to create insights into the business outcome, come into the little bit of that and then taking action against that and ultimately transforming the business where you say we improved EBITDA by by 20%, 30% all of the office of the cfo.
Speaker 3 00:08:35 People don't necessarily historically have looked at that as a real source of value creation. But if you can get those things right and I'll just give a couple examples like understanding gross margin or profitably down to like the skew level, understand cohort analysis around win rates within regions or types of salespeople. All that data exists in both small business and large cap companies. And or opportunity to run a more efficient finance function where that's lifting and shifting part of things to other areas to run just more cost effective solution. Putting in new technology solutions, say get insights faster, not just for the CFO or CEO or board, but really down to the business unit leaders that could be like an operations plan manager to say make certain like costing decisions on what they're using like within their supply chain or ahead of business development out in the field to understand like where we can, where this price elasticity and where we'd have a higher win rate if we just flex our, our rates a little bit.
Speaker 3 00:09:35 All that driven out the office of CFO can be highly quantifiably like, you know, quantifiably tracked on value creation. So I say all that because those are, that's a little bit the playbook we take in the larger cap sponsors but within, now to take it back to the question Peter is like around small business m and a, I think if you're, if you are the acquirer understanding all the levers around what can stem from the office of the cfo. So when you're going in and then working with the CFOs of newly acquired business of saying, have we thought about this or have we thought about that? And having more of a structured approach to at least a checklist of saying, okay, let's get through like you know, people, processes, technology, how can we optimize that? How can we get through the basics? But then are there opportunities along the way to look at things like cost optimization opportunities, technology adoption, things that can really sort of be caught miniaturized from large cap like companies are doing the same thing to things that are easily deployable within portfolio companies or just regular small business acquisitions.
Speaker 3 00:10:40 And so when we work with some of the lower middle market private equity funds we work with, a lot of times you've gone through a courting process with these founders, with these management teams and people were exhausted by the end of the acquisition timeline. And sometimes you don't necessarily wanna come in and be overbearing and say, okay, now we're gonna do all all these things. But what we found most successful with a lot of the lower mail market funds work but is having more of a like an institutional approach. And we call this like our jumpstart method of saying like just at the beginning, we're gonna sit down and we're gonna align around what we learned in diligence, what we believe the value drivers are because ultimately then that goes into the reporting to make sure we're tracking against those value drivers or that there's never a lack of, there's never a disconnect with what we believe is a true value creation plan here.
Speaker 3 00:11:34 And then certain things like it's just a checklist, hey, grading on, you know, our audit readiness grading, our getting the books out grad on our KPI dashboards and just, and being able to have institutionalized that well, well upfront to then go to a management team and say, look, this is not a reflection on you, this is just our institutional approach. And so sometimes it could take, take different shapes and forms, we want to just go through this with you and we've seen this as best in class. And doing that in a very sort of like straightforward way where it doesn't feel as maybe pointing the finger at a management team that certainly needs to professionalize and all management team professionalize in some manner, but saying this is just our approach to maximizing the value creation story and we want to do that in partnership with you as a management team.
Speaker 1 00:12:21 Yeah, this, this definitely resonates, like I want to talk a little bit about like just timeline here. So like you buy a business 10 million, 15 million business, either it's an add-on to a platform or you know, you're buying a 10 to, you know, $30 million like new platform or middle market private equity firm or you know, family office buying businesses, call it, you know, two to five, two to 6 million of ebitda. What is the right way to think about the timeline for the diet program or the jumpstart program? Like how, how should a new c e o a new CFO or a private equity partner who's just closed this transaction, how should they think about timeline to value and overall length of timeline to like implement some of the playbooks and some of the best practices that you've codified at accordion? Where in their mind should they set the expectation for sort of how long is this gonna take, how do we do it in stages? Like just what's, what's the expectation setting around that?
Speaker 3 00:13:15 Well I think that's a great opportunity to really start off with a partnership with management is like come up with the timeline of like how should we stagegate this and what could this, this could be a five year, five year process. Now what I would say is having that conversation early is, is really important
Speaker 1 00:13:34 And early meaning way before the transaction closes. Yes.
Speaker 3 00:13:37 Starting it or before the transaction closes back, we're very excited about this, we're excited to partner with you as a management team. We think there's, based on our diligence, we think there's a lot of opportunities here in order to help really optimize and grow this business. And we want to do that in partnership with you. So what we'd like to do post-close is, and I would say within the first month sit down and say, let us do a readout of all the things we learned in diligence and here's what we, within our own investment committee memo, here's what we said are the value drivers of this business or here are the potential growth areas and now together let's workshop this out and say how should we stagegate this? How should we think about these value creation opportunities? And you know, management team could say, that's great guys, but we've tried it in the past.
Speaker 3 00:14:21 We didn't talk about that diligence. We don't think it would work or, but at least it creates this healthy dialogue. If you take that too long and say, oh we meant to do it six months, 12 months down down the road, sometimes it just gets completely lost or the opportunity for partnership gets lost within, it's a little bit of a potential observation by management team. Like why are they bringing this up now and like, and why, like why didn't they bring this up? Is it, are they observing something about us as a management team that they didn't observe early on? So just starting to institutionalize that approach and doing it early and then that value creation plan goes through the life of the, the life of the holding. So you know that that plan on how we're gonna execute against these things, some of that could start four years from
Speaker 1 00:15:03 Now. Got it. So it can be a multi-year journey. It's not something that people need to feel like I've gotta get this organized and work backwards from something over the first six months or the first a hundred days or, or the first 12 months post, post-closing. Correct.
Speaker 3 00:15:16 And then having a really good platform to be able to track that, uh, is important. Peter, you know this, but we've got a software platform called Maestro that we developed, which is really, we've got about 600 portfolio companies on it. But what we realized is those value creation plans, especially in smaller businesses but also some of the largest ones value creation plans were being tracked in Excel. Maybe a PDF of a board presentation that they go back to or honestly in people's email inboxes. And you know, being able to take that value creation plan and put it away of collaboration and say here's the major drivers and look, let's look the KPIs related to that all in one place had never existed before. So we really built that. The great irony about private equity is it so much pressure on management teams to professionalize adopt technology, but they themselves, like the shoemaker's daughter like syndrome, they themselves are slow to adopt technology or institutionalize approaches and that is really changing in the market as we've seen now. Yeah,
Speaker 1 00:16:20 No I agree with you. I've obviously seen that and I think, and I think a lot of guys in private equity would, would not be too bashful to admit that that is true. If you think about a three year or five year journey around a lot of these, you know, a lot of these ideas, a lot of these opportunities to go from like an organization that's closing its books relatively accurately or ideally perfectly accurately and doing it within a a a quick period of time and that's kind of like day zero foundation of the sort of office of the C F O quote unquote. And then it sort of scales up into this incredibly strategic capability, you know, as the businesses are growing, scaling and deepening the talent inside the organization. I think it'd be interesting to hear a little bit about like there's the playbooks, right?
Speaker 1 00:17:05 Like there's what you guys have seen, there's the categories, there's the checklist, there's the playbooks, but what have you seen leads to great execution or like what are the really, really good private equity firms doing differently? Like everybody could in theory get the, their hands on some form of these playbooks that you're talking about. They could work with accordion, they could learn from you guys, they could use some of the software that you guys have built. But I'm sure there's still like a distribution of quality in terms of how well it gets done. What are the really, really good private equity firms doing or the really, really good post-closing C CEOs and CEOs, what are they doing that moves this from being just sort of like a checklist or a piece of software to like really actually delivering like real transformation? Like what do you see the best guys doing with your services, your product or just out in the market? What makes them great?
Speaker 3 00:17:57 It's a good question. Cause every, every private fund has a little bit of a different style. Some are command and control, some are truly like, yeah, let's we we back great management teams and we're there to like bounce off, you know, bounce strategic questions off of off of them. We are our ourselves are now in our second turn of private equity and both have just been great partners but bit different at, you know, different horses for different courses. And so, you know, I think across the board though, a unifying trait that we've seen as like best in class is what I would call organized partnership. And what I mean by that is the ones that are very much like as a private equity investor or a family office even invest in, in, you know, small company you haven't sat in that operator role at at the company.
Speaker 3 00:18:47 And so you may not know everything. So it's truly like how can I partner with this management team that can be a $2 billion like company that can be, you know, $20 million company, but being able to like really partner and say, Hey, I think this could be a good idea or we've seen this in the past and sometimes it's like, you know, it's gonna work, but like bringing a management team along is incredibly important. I'll get to the organized part in in a second, but you know, somebody told me early in my career, like you could have maximum conviction about what you should be doing within a company, but you need to win over the hearts and minds of your team. And that is like bringing people along like into that where it's saying, okay, the partnership, like we, we think this is best, let's have a a debate about it.
Speaker 3 00:19:32 I mean partnership truly comes from like healthy, healthy debate. But when I talk about organized like partnerships, the best, the best private equity funds and the partnership with their management teams are just being incredibly organized around those things around, okay, here's the value creation plan, let's go back to that. Is that still on the table? Is it not? And not being call it more shiny new toy center, like what are we just talking about this quarter? And like, let's focus on that. But always going back to a, to a structure. So we sit down with a lot of our clients and we do monthly portfolio reviews and we literally go through the entire portfolio like, all right, what's going on with this company? What's going on with that? And the new things have come up now also within each one of those, let's go back to the office of the CFO VCP that we laid out at the beginning and be like, is that still relevant or not?
Speaker 3 00:20:18 And then we'll talk to the management teams about that. And so it just allows things, and this happens all the time, like, and you know, people just don't realize, but things just, if the value creation opportunity slip through the cracks, like, oh, we forgot like about, about that, or there's a real opportunity because this may seem like hard work. We've got, you know, we've got five different disparate systems that aren't talking to each other. But if you combine those things and there's more of like technology implementation can bring all those together and create more insights outta the company that could lead us to like better actions coming out of it. And so we just, the organized partnership with management teams, whether that's a 20 million company or a 2 billion company, is really, really important. And it's, you know, it is making sure nothing slips their cracks on the organization part and then also partnering with the management team to get the best out of them. And that's more of a soft approach that's been really best in class.
Speaker 1 00:21:12 Yeah, I'd love to hear a little bit about the way you think about the evolution of the office of the CFO over the life of a business that goes from sort of smaller to bigger, right? And maybe this is a really interesting opportunity for you to talk about the office of the CFO at accordion itself, right? I mean, long ago, back in 2009, it was <laugh> just you and a co-founder or two starting the business, right? And today you guys are just shy of a thousand employees, you've made four acquisitions, you know, so many, I think people buying and acquiring and, and developing small businesses that they start out with a very simple and straightforward sort of office of the C F O. There really isn't even a C F O per se, right? And so how does that mature over time? Like, and how do you think about the way in which that office expands, you know, uh, pick your starting point, you know, it could be a 15 million business, 20 million business, you know, something like that. But how do you think about the way that that office expands over time? How do you advise a CEO or a private equity firm that's bought a business like that in terms of the rate and the pace at which they, you know, they would expand that office? Just how does it evolve over time and how do, how, how should people be thinking about that when they've bought businesses that are on the smaller side, but where they've got, you know, big ambitions for them?
Speaker 3 00:22:30 Yeah, well I think not just the C F O, but I think there are management teams and leaders of zero to $5 million businesses, five to 25, 25 to a hundred. And it's rare that leaders or a collective management team can transcend all those, all those stages. But there is a real, like, there's a real opportunity to do so and you just need to understand like what, what you need in those different stages. So when I started the company in 2009, it was just myself and then one of the first people we hired was, you know, somebody to really focus on some of the, the recruiting side of it and then hired more of a COO type, but first started off as like business development. But I myself was playing like CEO slash CFO role. I remember our office was in, in soho, and it was far from your place.
Speaker 3 00:23:23 Peter and I would spend, like, I would schedule it like every like two weeks, like a Tuesday evening, I'd just stay in the office and just like download like the bank statements from like QuickBooks like, or into QuickBooks Reconcile that we had. One of our colleagues was like doing the payroll. I was a terrible C F O and that's, that's, yeah, kinda ironic, but the, but then we hired like an outsourced CFO to help out, which just like from an accounting side. So it was all just about like really accounting at at that point. And I've been very lucky to what I truly believe is like the best CFO in the business. A guy named John after he's been our CFO for the last, last nine years and has made the transition from small company CFO to, to much larger, much larger now, but you know, very much, you know, starts with accounting, just gotta get like, get that right And it is just the grind and of just getting, you know, the books out, getting people, people paid your vendors, your vendors paid.
Speaker 3 00:24:25 And then that small business CFO is, if they can truly be like a confidant and partner to the whole business, a confidant to the ceo, a real partner to the business, they can really be a, like a great accelerate of, of that growth. And so being able to listen early on of like take it from just the accounting side of the house, and we all know this like so many like small business CFOs or like CPAs, but if you can start to be like a real partner, like, you know, what is it about like to like to the front lines, what is it about your, your jobs that you need more support on and like, and how can we help you from a like a finance function, you know, that can be a great accelerator of growth and you know, usually growth comes from like, you know, chief revenue officer or like a ceo, but like CFO can truly be one that like be, is a real partner to accelerate that by, you know, providing 'em with like, you know, let's help think about like KPIs or let's just help have strategic discussions around like profitability by employee.
Speaker 3 00:25:24 Are we putting 'em in the right place to be successful or we, and then going to the CEO saying, I think there's an opportunity for, from like a cost perspective to like make sure we're just controlling costs in general. And so a lot of entrepreneurs are like, you know, highly like growth focused, but having somebody as a counterbalance say, okay, we can do that, but these, these are the implications from a, from a cost standpoint and or keep a scrappy nature of, of the firm in order to maintain profitability. Like, great. And so then as you evolve, you're being able to add on more fp and a chops over time as you get bigger and start thinking about your own m and a typically, and I can tell you our own story in a, in a bit, but like, you know, typically like there's no corporate development function and so you're wearing a little bit of all hats. I think I still think in that like sort of call it like five to 75 range of, of revenue. You know, the, the CFO was also playing like chief legal officer. I know like John Apter was like, you know, reviewing all of our NDAs. He happened to have a wife that was, was a lawyer in Supreme Court Justice in New Jersey. So up to having him, her being in his household, it's a
Speaker 1 00:26:29 Good CFO to have <laugh>.
Speaker 3 00:26:31 Yeah, yeah. And then, and then partly it's like because you touched so much of the data, like you have a real HR influence as well. So playing a little bit of, of all hats, but I think as you grow over time then it's like start thinking about like, okay, what are we doing to build a real scalable organization? Does that make sense to keep on my plate anymore? Do we need to build out like a controller take on the accounting side, an fp and a a corp dev side of the house and then, you know, being comfortable and a lot of people struggle with this, being comfortable will say, okay, now I'm gonna elevate, I may not be in the weeds of all those things. That's why it's rare for leaders to transcend all those stages, but if you can get comfortable being like, I am not as close to those things as I once was, I wish I could answer those, those questions. But also understanding what questions do I need to be to be able to answer what details should I know versus what do I need to rely on others and trust them to, to have those answers for me. That's a, a really key, key skill that has to be developed over these stages.
Speaker 1 00:27:29 Nick, do you feel like I I I feel like the sort of, you know, the, I, I don't know, maybe this is just my own sense for it, but to me it sort of seems like the office of the CFO is kind of like this afterthought for small and mid-sized businesses. Like there's a founder or there's a CEO or a general manager and like the businesses, you know, somewhere between five and 15 million or 20 million and it's just kind of like every incremental dollar, you know, that's available for, you know, reinvestment. It's just the default thinking is like sales marketing or improving the product or the service that the company offers, right? There's, you know, and it's kinda like we, we'll clean up the <laugh>, we'll clean up the, the books and the sort of f you know, the fp and a like, you know, we're too small for that.
Speaker 1 00:28:14 A pretty commonly held narrative by what, what do we need an fp and a for? Like we need to figure out if we have like a great big business here, you know, why, why bother on that? Do you advocate for someone investing substantially earlier in, you know, financial planning and analysis office of the cfo or do you feel like that still is generally the right construct for, you know, for sort of like small businesses that are looking to grow? Like how do you, how do you react to people who say to you if you ask them like who's, you know, who do you have running your finances in your book? They're like, we don't have any, we just have a bookkeeper, like a part-time bookkeeper, every incremental dollar goes into customer acquisition, product development, et cetera, et cetera. Do you react to that and say that person, you know, is making a mistake and say like, you guys really need to be building, you know, a finance function or, or do you think that there is an acceptable period of time where you can kind of just <laugh>, you know, wing it in the back, in the back office?
Speaker 3 00:29:09 I, I think for small businesses there's an acceptable period of time. I mean I go back to the whole like, you know, look, revenue cures all problems. So like you wanna focus on like on growth now at like acceptable period of time, like maybe a small business at 5 million but at 15, like you're starting to get a little bit more complex. And if I, but it's hard to find like that great, you could find the bookkeeper if you can find a real CFO in that that is sort of plays all around athlete thinks with a business lens, not just, you know, know financial or accounting lens can sit in that role, acts like an owner of the company. Then there's real opportunities from, you know, not just like profitability improvement from like a cost standpoint and like being able to drive certain business business actions.
Speaker 3 00:29:57 But there is, I mean it could be something as simple as like looking at the employee base and saying, Hey, we've got employees all over the nation right now. Are we doing cost of living adjustments or are we paying everyone on the same, the same rate card? Like are we, how are we thinking about like about that where there's real profitability improvements? But then there are things like, you know, looking at commission structures for salespeople, things like our profitability by services or product could be very different. So how do we align the organization and things that are much more profitable activities. Those are real revenue drivers. And so if you can find that cfo, I mean I think you can, I think there's a period of acceptance of like acceptance of like you where you're just getting the books done. You can get a bookkeeper, they're small business outsource CFO services, can find someone in your like local region like to do that. But as you start to like get on that scaling journey, like if you can find a real all around athlete to focus on all those things and maybe at that point they're leveraging a local controller that is doing a lot of those things, but they can put take on the hat of more being a partner to the CEO partner to chief revenue officer to identify opportunities for real growth, then it makes all the sense in the world to really invest behind a good CFO in in that regard.
Speaker 1 00:31:17 Let's talk a little bit about acquisitions. I think. How do you think about acquisitions and their intersection with the cfo? Do you view corporate development as the origin of, of acquisition ideas and opportunities for the business? Or do you view acquisition strategy as like very CEO centric and then sort of the office of the CFO is, you know, sort of there to, to think through it and to process it? Like how does, how does corporate development evolve and how do you see it evolve as a, as a business tructure to think about making add-on acquisitions?
Speaker 3 00:31:51 Yeah, Peter, let me, let me get there. Let me, I was just thinking about one thing I, I think like for, especially for small business, which is like part of like the playbook we've taken from like the very large caps to like the small business ones acquisitions, which are really one of the things we do very often and there is we, we do often is what we call sell side readiness. And like a banker may be involved in like large cap like sales coming up, but they'll call us and say we need to get this company buttoned up for sale and we need, like buyers can ask certain questions and I think we all know this, but the faster and the more succinct you can answer a potential buyer's question, then it leads to, you know, an increased view of a professionalization management team and ultimately potentially, you know, half turn or turn more of ebitda like a sale process.
Speaker 3 00:32:37 So I think even for small businesses which are thinking about sale, a sale process, the CFO is saying six months ahead of time, 12 months ahead of time, like what could a potential buyer ask us? And like buttoning up all those questions, having data at the ready coming across this professionalized management team, it certainly increases, this is the potential of a higher enterprise value upon sale. And we've been taking that to the lower middle market companies of saying, you should be thinking about this, you know, at the very beginning thinking about who, what's the exit opportunity? But a year ahead of time thinking about what do we need to be able to answer and do we have all those answers at the ready and it just makes for a much more seamless process on the sale process.
Speaker 1 00:33:19 So actually let's dive in on that. I think the sell side is super interesting. So you g you guys are coming in and doing sell side readiness and those are typically for portfolio companies that are somewhere between six and 18 months from going to market as a, as a potential sell side business, right? Correct.
Speaker 3 00:33:35 Yep.
Speaker 1 00:33:36 Okay. And you get brought in by a private equity firm with whom you have an existing relationship or you're kicking off a new relationship and that's that's the day one assignment.
Speaker 3 00:33:44 Yeah, we or we get brought in by the bankers saying we're gonna sign this company up, we're gonna go to market in our diligence as bankers. Every time we ask the management team they've got a great business. But we asked the management team like, can you talk to us about the, like the customer journey, like what have they bought each year like from you guys and or how long have they been around talk to us about, you know, employ employee attrition rates and they just can't answer those questions at the ready. It comes across like not as professional as a business and the bankers get paid to sell the business. Like can you guys come in and just help the management team work through those things? And sometimes what it comes down to is like there's technology needs that need to go in there to be able to like pull that information and have it available to the front lines of the business or to a banker or a management team.
Speaker 3 00:34:30 Sometimes it's about putting new processes in place and there's sometimes like accounting processes where it's like, hey, what's your order to cash, you know, process where now like how are we thinking about do we treat our, like our payables? How do we think about our, like our procure to pay processes? And so those are, you know, things if you can button those up like massive working capital opportunities even ahead like during that process, not about just answering the potential questions of a buyer, there could be quick wins that happen ahead of time where you're like, we just improved our working capital by $2 million and that is like leads to real value crops creation opportunities. And so it's been a process we've seen is very well served going into just run potentially, you know, a higher valuation going into a sale process but also run just a much more efficient process and increase the certainty of execution of that transaction.
Speaker 1 00:35:24 Yeah. And so how, how much time do you find yourselves taking on those kinds of assignments? Like what, again, I'm just working backwards now from a business owner's perspective. If you're a business owner, you happen to listen to this podcast, podcast, decide, you know, you're thinking about selling your business out in the future a few years from now, if you're gonna do some form of sell side readiness and you're gonna do something pretty well, maybe not perfect but pretty well, like what should you be budgeting is the amount of time that takes to do some of that work. I'm sure it varies, but like what kinds of assignments do you find yourselves doing at accordion there?
Speaker 3 00:35:56 I think six to 12 months is a, is a good timeline to say we should be doing this ahead of time. Now budgeting the level of effort that may go in is that's tough. Differs. Yeah. Yeah. By, so at accordion, and this is not necessarily just for like small businesses, we will typically come in for two to four weeks upfront and say, you know, that could be 12 months out and say alright, let's sit down and go through this assessment like how well prepared is this company for sale? Now let's go through the people, processes, technologies, the the buyer potential diligence questions. And within two to four weeks we can say okay, the level of effort is like we could get this done in three months. It could be like a 12 month journey because some of the things that buyers are gonna be really laser focused on just aren't being tracked in the company now. So sometimes it's going back and collecting historical data, sometimes it's created a process to be able to collect that going forward into 12 months. So that level of effort can very much vary. But I think best practices say if we are 12 months out from selling a company, we should be doing this because there could be things that pop up that we do need a year in order to be ready to go to the market. And you know, some things may be three months,
Speaker 1 00:37:08 Right? It's different from Q O e, uh, what you're doing. It sounds like it's not cause there's more and more Q v sort of that's getting done by the sell side, you know, quality of earnings. It sounds like this is separate but related,
Speaker 3 00:37:20 This is more business oriented focus. Q O E is more around checking the financials, making there's not make sure there's not a weaknesses in that, but this is more of a business oriented focus. Like if I were a buyer, here's what I would be looked at because those will lead into the value drivers. I'll be thinking about the businesses going forward.
Speaker 1 00:37:39 Well it would be so fun to just spend a little bit of time before I let you go, talking in about your own acquisition journey at Accordion. Obviously an awesome organic growth story from day one, but you've made four acquisitions now, so you're getting a chance to do to to eat your own dog food now Nick and you know, use all the checklists and the playbooks that you're, you know, constantly evangelizing your, your clients to use. Like tell us like what have you been learning? Where have you guys been getting better at Accordion as an acquirer yourselves? What are some things you feel really good about the way you've done it? What are some mistakes you feel like you guys have made that you're learning from? Just love to hear just, you know, how your own development acquiring businesses is is coming into focus now that you guys are, are repeat acquirer yourselves?
Speaker 3 00:38:22 Yeah, well we're 14 years old. We've made four acquisitions in the last two years. So we had some board members early on who had gone through acquisition like roll up journeys and like, look, that's a great way to create equity value and you guys should be thinking about it. I personally was a bit hesitant on it for a long time and was very protective of the accordion culture of doing things away, didn't want to gobble up anything too big and potentially disrupt, I thought was something unique. And then, you know, for us personally, I think it was like we had to get to a certain level of certain level of scale and then we started really thinking about it. So about we made our first acquisition in May of 2021. We had, and this was in the turnaround and restructuring space, having founded the firm in 2009, we had only lived in a bull market, provided an all office of the CFO services, but we had did not really have a downside protection to the business and said, look, turnaround and restructure is an area we want to be in because so much of that stems from the office of the CFO to really turnaround the company into Orange space versus like full red bankruptcy.
Speaker 3 00:39:34 Interestingly, we had been going down that path of like looking for something pre covid. I had met a founder of a company called Mackinaw Partners prior to to Covid and we had very much thought, hey, we should acquire Mackinaw. And had sort of gotten almost there in February of 2020 and then Covid hit and, you know, golden era for turnaround restructuring. We did not Jim Weisen more. And the, the founder of that was like, no, there's something going on. We're just gonna like, we're gonna be pretty busy, we're not gonna focus on on this sale process right now. We stayed very much close to to Jim through this and then ultimately said, look, turnaround restructuring is a boom and bus business. We love this business, we want to be in and in May of 21 we stayed all over it and, and we had executed that acquisition just as honestly like turnaround and restructuring was starting to get a little, little bit lighter.
Speaker 3 00:40:27 But our belief is that talent that sits in that space is very fungible, uh, can take on interim leadership roles, can lead large transformations. We run and we will, we're gonna find ourselves in in various economic cycles. But this was the underpinning of all of our future acquisitions. First is that we were looking for great founder to run businesses like with a strong culture similar to accordion and from an employee value proposition, which we've always, that's always been the hallmark of accordion's culture is like how can we provide a better employee value proposition to the, to the team at Mackinaw to be part of accordion, allow them to thrive in any sort of economic environment and get super, a super passionate founder to be part of accordion to run that practice at accordion. And so I was very much involved in bringing that in, bringing, you know, the cultural alignment.
Speaker 3 00:41:19 Our, our president's very much involved in the integration of these companies cross selling services like teaming, our CFO led the, the mechanics of the acquisition there helped come up with like compensation, you know, strategies for, for the two and really partnered with the CEO and and their COO to get that done. And you know, that was an acquisition where we had thought previously about like buy versus build and for us prior to identifying Macau, we had been trying to build that, build that and there's just, and this is where I now came to the realization of what our board member was pressuring us on of like doing more m and a is like sometimes it just takes too long to build things and it may take to have like a reputation in the space on brand, it may take 10 years to to do it.
Speaker 3 00:42:05 So it's just better to buy sometimes and if you believe that it's that it's gonna be additive to the culture additive to the collective service offering. And that was a real eye-opening experience for me. And then through that time we started looking at more and more m and a. We were backed by Ffl Partners outta San Francisco in the last turn we had focused really on the technology journey CFOs go through and how tech enablement is gonna be more and more important in the office of the C F O. So in February of 22 we acquired a company that focused all on Anaplan. So budget and forecasting expertise, Oracle consolidations your expertise required a, this company was, had two co-founders, young, passionate about growing, passionate about their team, very similar to Mackinac called Platform specialists. And they have been just a great addition. So a lot of the hallmarks of of our m and a strategy has been super passionate.
Speaker 3 00:43:05 Founders high on employee value proposition and get excited about the broader accordion story. And then in then last year we acquired another NetSuite implementation firm when we did our most recent project, we deal with Charles Bank Capital Partners and Motive Partners in the same, and I'm happy to say that all of those from an integration perspective, we've seen no real attrition, tons of growth from, from that. And we took a client lens first like what do our clients need? And that's really, really led to the growth of those teams. But from a corporate development standpoint, our CFO has led a lot of that from a, from an execution perspective, it's been really important for like a CEO aqua for myself, like acquiring small businesses. You need to be very present and you need to be very much your part of your team. You're bringing them into the fold and to the spirit of the firm and a lot of that voice has to come from, from you.
Speaker 3 00:44:00 So for CEOs out there, you can't necessarily say okay, we lined it up, now I'm gonna hand it over to the CFO and then all of a sudden you're non-existent and your track record on m and a matters because the next target you're gonna go to will want to talk to the CFO A lot will, but we'll want to talk to the past acquisition saying how did it go? And you need to make sure there's no footfalls on what you promised early on around what your firm will be, will be combined. And then, you know, now that we're much, much larger and you know, almost purchasing a thousand employees, we just hired a corporate development professional that had come out of private equity because we're now just looking to, you know, our target is really do about two to four acquisitions a year, a year now a lot of that when I talk about the CFO will elevating c stripping certain responsibilities before, now it's like how do we create more and more leverage in the organization?
Speaker 3 00:44:51 Myself as the ceo, I've gone through this journey as well of saying, okay, I need to like shed certain responsibilities in order to uh, to grow and the CFOs need to go through, through the same thing. And so we now have a head, a corporate development professional that is focused on maintaining relationships with bankers, setting certain opportunities, is very close with myself and works directly for our CFO. And we, and also like makes sure that fits our strategic roadmap and so that we can be really efficient as we look at these things. It's given a lot of leverage to, to our cfo and now we're at the point where you need to build that leverage into organization cuz we can't rely on our CFO to, to do all of that.
Speaker 1 00:45:32 Right. Whatcha you spending your time on now, Nick? Like you've got a CFO who's been fantastic, you have a deep relationship with John, he's been with you for many years now. You are organized around acquiring like, you know, a few businesses a year. Where are you in the CEO journey right now, your yourself? Like what are you excited about, what are you focused on? How do you find yourself spending your time now? Yeah,
Speaker 3 00:45:55 It's a great, it's a great question. It's, it's constantly being refined, but just I'll tell you quick story. When we, when we had Ffl come in in the fall of 2018, they were great. They like, they, they were like, look Nick, like you know, you've done it all like so much of this like so far, like that's not necessarily scalable. Like can we just sit down, like write down like what do you love doing? And then like what we call like what are energy creators, which are like, versus what's like an energy vampire <laugh>. And so, and I was like, you know, naturally like no, no, I can do it all. So it's great. What I realized is, you know, I love the strategic development aspect of the, of the business, like spending time with our people. Like how do we think about like making accordion like the very best place to work, how do like, spend time with our clients?
Speaker 3 00:46:48 So like what do you need, how's the office of CFO evolving? Like what are the pressure points? And then thinking about how is that, that fits into the strategic roadmap. I love focus on big hires. I love focusing on big clients and staying very, very close to market. What I didn't love is the like internal like operations, like okay may love business development but hate the account management side of it. Like how are we thinking about like, you know, stratifying like clients, how do we thinking about, you know, what are like, you know, the organized go to market plan of like what's the pursuit team on that? But what I realized over time is there are some people out there that for the thing, all the things that I don't love, there's some people out there that absolutely love it. So hired somebody I'd known for a long time as their president.
Speaker 3 00:47:35 Again, Matt Atel Agrawal, he was at Bain and Company leading the, the global transformation efforts for their clients there. He loves that stuff and like loves again to the weeds of like in integrations of m and a, like the operations of really scaling a consulting business. And that has freed me up as a CEO to really focus on the front lines of both our people and our clients. And if you're like, if you'll just like, let me just geek out about this for like for two seconds. There's a concept called founders mentality out there. And Founders Mentality was really defined by, by Bain and Company. And this isn't like management consulting bs this was like 500 companies done research. Like how did great companies scale and kept their secret sauce and how did some companies which great and scaled and lost at secret Sauce and there's like four, it's a real playbook.
Speaker 3 00:48:25 The, the book is fascinating. I I put it up there with like blue Ocean strategy, but there's four things that push companies to really lose, lose their way. Uh, Starbucks went through this, home Depot went through this one is unscalable founder. As companies get bigger, founders still try to make all the decisions themselves. And in order to combat that, you need to create a, like a mini cadre of, or cadre of many founders and like, and you empower them to make founder type decisions. And if you stay close enough to 'em, two is a lack of accountability happens. Companies get bigger, they, you know, people hide and there's no individual accountability. So how do you create like a collaborative culture but also like with individual accountability? That's been part of our ongoing thinking. Three is a lack of radical focus on the front lines. All of a sudden companies get bigger, create ivory towers and management teams aren't connected to the people or the clients.
Speaker 3 00:49:20 And then four is revenue growing faster than talent and this pursuit of growth, people lower their talent bar and all of a sudden the caliber of the firm, the firm lowers. So this has been our number one playbook as we've scaled accordion, we've talked through it with all with our private equity firms that we've, we've worked with and it's really been a playbook for success. And so that has allowed me as a CEO to like go on that journey and be like, what do I love doing? How do I stay close to front lines? How do I become scalable? And so I just got back from Germany last night, big private equity conference, but it allows me to go in like this private equity conference call, super return and really listen to the pulse of the market, talk to the managing partners of all these large private equity funds and help shape what accordion strategies should be. And without building a scalable platform where like in giving up responsibility, I would never have the time to be able to go do that and do that sort of deep thinking that will propel accordion into the future. So I highly suggest any high growth business to really take a step back and like think about your scaling journey and definitely read a, a book called Fat Mentality.
Speaker 1 00:50:28 I was gonna ask you in a quick lightning round what were some, you know, influential books or people, but you preempted me, Nick, I've really enjoyed the chance to catch up. I mean, we could obviously go on and, you know, maybe what you and I will do is just do a part two at some point here. I know you want to get, uh, go spend a little bit of time with your boys. You're just back from Germany, so it's a great place to wrap up. Congrats on everything you've achieved. So cool to watch you guys continue to build the company and I think you, you shared some really interesting things in the last hour, so super grateful for, for making time your first day back. Sure.
Speaker 3 00:50:59 Appreciate it, man. Okay.
Speaker 1 00:51:01 See you soon. Thanks again, Nick.
Speaker 0 00:51:03 Thanks.
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